An IRA and What Happens at Year 70.5

by Michael Keenan
You must start withdrawing from traditional IRAs when you turn 70 1/2.

One benefit of using an individual retirement account for your retirement savings is the profits aren't taxed as long as the money remains in the account. However, the tax-sheltered growth of an IRA can't last forever. If you're using a traditional IRA, you have to start taking distributions when you hit 70 1/2 years old.

Required Minimum Distributions

Traditional IRAs require you to start required minimum distributions in the year you turn 70 1/2 years old. Your first distribution doesn't have to be taken until April 1 of the following year, but all future required minimum distributions must be taken before the close of the calendar year. For example, say you turn 70 1/2 during 2014. Your first mandatory withdrawal must be taken before April 1, 2015. But, your required distribution for the 2015 year must be taken before Dec. 31, 2015.

Withdrawal amount

The amount you must withdraw from your traditional IRA depends on the value of the account and your age. The value is measured as of Dec. 31 of the previous year so you know how much you must withdraw at the start of the year. Whatever the value, divide it by your life expectancy as measured by the IRS life expectancy tables in IRS Publication 590. Usually, you use the Uniform Lifetime table, but if your spouse is at least 10 years younger than you, use the Joint Life and Last Survivor Expectancy table instead.

Penalties

If the IRS telling you that you must take the money out isn't enough encouragement, there's a 50 percent penalty on amounts you should have withdrawn but didn't. For example, if you were supposed to take out $20,000 but forgot, you owe an extra $10,000 on your taxes because of the penalty.

Roth IRAs

On the other hand, nothing happens to Roth IRAs when you hit 70 1/2 years old because you're never required to take distributions as long as you're alive. That means the money can continue to grow tax-free in the account as long as you want. Even after you reach 70 1/2 years old, you're still allowed to convert money from a traditional IRA to a Roth IRA, you just can't count the converted amount as your required minimum distribution for the year.

About the Author

Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."

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